The Emergent Way: How to achieve meaningful growth in an era of flat growth

While there is much to be said for being proactive, the best strategy for today’s slow-growth, volatile environment may be one that is essentially reactive, a strategy in which CEOs, like some great athletes, allow the game – in this case, events — to “come to them.” This is emergent strategy, one that in a certain manner is formed on the fly, constantly reacting to events and fast-changing reality. This author makes a strong case for why an emergent strategy is the right strategy for a slow-growth business environment.

Much of Europe is in a mess. The U.S. appears, at best, to be stuck in neutral at least until the Presidential elections of 2012. There is still growth in Asia but there are early signs that its growth is slowing as U.S. and EU issues impact even the enviable Asian growth engine.

What’s an executive to do?

First, for most firms in most industries I believe that adopting what is known as an emergent strategy approach versus the deliberate strategy approach of Michael Porter is an excellent starting point. “Emergent” is a strategy first suggested by my colleague, Henry Mintzberg. Instead of the deliberate approach, the emergent approach is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. It is a more grass roots, front-line oriented approach where solving real business problems leads to new strategies

The world of deliberate strategy is one that I remember well from my days as a corporate manager at IBM and then as an executive education teacher at Oxford and the London Business School. It was a world of strategy planning weekends at posh hotels in the English countryside, where we sat in rooms discussing the 5 Forces in our particular industry and what would we change in the model if we had a fairy’s magic wand. The output was 3-ring binders in North America and 2-ring binders in Europe. This worked well in its day, back in the 80s and part of the 90s, which were wonderful times now looking back on it, and a time when the past was quite helpful in predicting the future.

However, today’s more volatile world no longer lends itself to this type of deliberate strategy, especially when you’ve got to be faster and more agile than competitors. In such a world, and in these times, emergent strategy seems to be a better fit.

Emergent strategy is the view that strategy emerges over time as intentions collide with, and accommodate, a changing reality. According to Henry Mintzberg, emergent strategy is a set of actions, or behavior, consistent over time, “a realized pattern [that] was not expressly intended” in the original planning of strategy. The term “emergent strategy” implies that an organization is learning what works in practice. Given today’s world, I think emergent strategy is on the upswing, and below, I explain why I believe this is the case. (In the interest of full disclosure, I acknowledge that I have worked closely with Henry Mintzberg, co-directing and co-teaching Leadership Programs at McGill, where we have been on the faculty for more than a decade. On numerous occasions, I have presented key parts of Porter’s ideas on strategy for a couple of hours and then Henry would present his ideas as a contrast to Michael’s. We started doing this tag team effort about 11 years ago and almost always the executives in the class have agreed with Henry).

It seems that the relatively stable world of (or at least part of) that was so familiar in my corporate career has gone the way of the dodo. At times, in fact, it seems that the world has gone nuts. Let me count the ways: Greece, Italy, Portugal, The Tea Party, Japan, 9/11, Hurricane Katrina, SARS, the financial collapse of 2008 and 2009, and the BP oil spill. I am sure you can think of many more examples. As one writer put in it in a recent Sunday New York Times article, “For a moment, all the swans seemed black.” However, my friend, Dick Evans, the former CEO of Alcan, pointed out that my memory was a bit selective, as recent history is full of other unpredictable events that have destabilized the economic order. He reminded me of the time that he was stationed “in Africa, experiencing 3 coups – and then back in the U.S. in the midst of the era of the junk bond raiders, a wrenching manufacturing recession, and the fall of the Iron Curtain – not to mention personally experiencing the Loma Prieta earthquake in San Francisco in 1989. All of these seemed pretty “black swanish” to me at the time,” Dick said. A fair point, but it nevertheless seems that strategy has shifted in the last decade to where the “planning” school no longer has the street cred it once had.

It is precisely because we cannot, try as we may, control the variables that factor into business decisions that Mintzberg’s emergent strategy is so useful. Porter’s ideas are still relevant, my colleagues and I still teach them, so I still believe in them, and when I talk to corporate CEOs they still use them as part of their strategy planning thinking. However, Porter’s ideas are simply not as powerful as in the past.

Emergent strategy in the C-Suite

So what does an emergent strategy approach mean on a practical level?

My advice for C-Suite executives is to look for growth opportunities in every part of the firm, but without assuming personal responsibility for thinking up new approaches. Rather, these same executives should look for opportunities among their front-line troops and middle managers. In other words: let a 1,000 flowers bloom, encourage Jugaad, lop off the heads of most of the 1,000 flowers, and scale up those experiments or pilots that work. I will explain each of these tactics below.

We need more innovation in our organizations in these slow growth times. Carefully chosen, scaled innovation will certainly help us reduce costs. But more importantly, it will allow us to respond to customer needs more quickly and get their feedback more quickly, especially on our new-to-market ideas. The value of this newfound agility cannot be underestimated: Once we spot growth opportunities we’ll already be speeding down the track while our competitors are still in the starting blocks.

Let 1,000 flowers bloom, particularly on the front line. Some old-fashioned executives see themselves as the prime source of innovative ideas, approaches and business models. But this “big brain” approach relies too much on one person or a handful of people. I suggest that executives shouldn’t try to be the source of all innovation but instead harness the wisdom of crowds by engaging their front-line troops and middle managers.

I write a weekly blog for Forbes.com. The problem is that I don’t have 52 ideas a year, but maybe 3 or 4 at best. So I turn to co-authors, sometimes CEOs, other times consultants, sometimes MBA and even undergraduate students. This is an example of the wisdom of crowds approach. It is a considerable relief that I don’t have to be responsible for every idea, in fact, only a relative few. So I suggest that executives look to the front line and those in the middle of the pyramid to spark innovation.

Why those at the front line and in the middle?

Your front lines troops are boundary spanners, that is they have a foot in your organization and a foot in the turbulent, changing, demanding world of your customers, suppliers and competitors. Too often, executives spend the vast majority of their time locked away in internal meetings. That’s not necessarily a bad thing, but they should recognize the downside: they become out of touch with the external world of the firm. If we work with front-line employees and encourage them properly they can be an outstanding source of new ideas to grow your business.

Along with front-line troops, I have a particular appreciation of middle managers. Research has demonstrated again and again that change initiatives originating with middle managers are the most powerful force for successful change in larger organizations. We strongly recommend using these two groups to throw up new approaches to reducing costs — always good in challenging times — but more fundamentally, to spot and experiment with new ways of getting growth from existing and new potential customers. What role do executives play? They create a culture where this occurs, encourage it through their own actions, and choose which growth possibilities to scale up.

I also suggest that senior executives encourage the use of pilot programs to prove the value of the innovation or idea. They should then kill off the vast majority of these ideas but scale up those which have produced results in the pilots. Hence, they should rely on real-world data rather than fancy spread-sheet analysis alone. It is the role of executives to sort out which ones should be scaled, and then carefully source those and spread them across the relevant parts of the organization.

A critical element of the approach I am suggesting is Jugaad. In these tough times the answer is no longer to throw money at something, if it ever was. What we increasingly need is frugal innovation, what the Indians call Jugaad, an idea, whose time has come. Earlier this year 30 McGill MBA and B.Com. students, and me travelled to India to meet with executives of a number of large companies in New Delhi, Mumbai, and Bangalore. This was a part of the ongoing Hot Cities of the World Tour. The word Jugaad turned out to be the word of the trip.

We first encountered the word in London en route to Delhi, while visiting the offices of The Economist during a layover. We sat down with Adrian Wooldridge, the Management Editor and Schumpeter Columnist, who had just returned from India and was glad to share some of his thoughts with us. One of the topics was frugal innovation, the essence of which is captured by the Jugaad mindset. Jugaad is a Hindi word that, in short, refers to making do with what one has to solve one’s problems. In a business context this means bringing innovative products to market despite limited resources – if not thanks to limited resources, since it is financial constraints that drive it in the first place. Frugal innovation results in great value — no-frills, good quality, and functional products that are also affordable.

Throughout the trip’s many discussions, three examples of frugal innovation stood out. One that everyone has heard of is the Nano, unveiled by Tata Motors in 2008, which now retails for just over US$3,000 and is equipped with only the bare essentials. Though it is still too early to say whether the Nano will truly become “The People’s Car”, we were told that although it has problems working on really hot days, it is a good example of frugal engineering.

New low-cost technology in healthcare also has everyone talking. For instance, GE, which operates tech centers in Hyderabad and Bangalore, has introduced breakthrough items such as an electrocardiogram in a backpack and a computer-based portable ultrasound machine. These devices sell for a fraction of their usual price and are said to have the potential to revolutionize access to healthcare in developing countries. Interestingly enough, frugal innovation reverses the historical notion that multinationals innovate in rich countries in order to sell their products in poor countries.

The concept of Jugaad, however, is not just about developing new technology. In fact, the work of the Dabbawalas in Mumbai demonstrates exactly that (Dabbawala means “one who carries a box” in Marathi). The business model is simple: Dabbawalas collect freshly cooked meals in boxes from the homes of Mumbai residents and deliver them to the workplace for a very modest monthly fee). Five thousand Dabbawalas deliver 200,000 boxes per day using only bicycles and various modes of public transportation. Forbes Magazine awarded its Six Sigma certification in 2001 to the Dabbawalas based on a 99.999999 percent delivery accuracy rate (and amazingly of only 1 error for every 16 million transactions). [N.B. Thanks to undergraduates Daniel Novak and Veronica Dasovich for these three examples.]

I have recounted a few lessons that the students and I took away from the experience. For one, frugal innovation goes beyond clever R&D. It has a lot to do with process – in this case, maximizing the efficiency of the supply chain. Second, sometimes less is indeed more. No fuel, no capital investment, almost no modern technology, and yet a high quality of service. And third, the circumstances of the operating environment matter a great deal when it comes to frugal innovation.

How do we use frugal innovation back here in the West? I think we use it a lot, but given the state of our economies, I believe we need to use it more. I am currently working with a big airline and am encouraging senior managers to adopt this approach. The airline industry today simply does not have money to throw after their problems, if it ever did. There is still room for the CEO-led huge transformational change. But I think the dominant route to corporate transformation is to adopt the 1,000 flowers to bloom approach and fertilize the best. Then, when they have proven themselves in pilots, scale them up and spread the key, few winning innovations across the organization. This connects middle managers that are close to the customers and the day-to-day work of the airline with the real business problems of today’s airline industry. As middle managers, they have credibility and access to the senior executives who, correctly, control the purse strings. Jugaad is a concept that appears to work in India and, in my mind, could easily work here in the West.

In effect this is, at heart, an appreciative inquiry approach, where we stress looking for the unusual positive growth in your firm. This is important in normal times, but in times of sclerotic growth it becomes, to my mind, paramount. Early in my career I was trained as a manager to look for red ink, that is negative variances, and then look for why that situation developed and to fix it! Too often this turned into a hunt for the guilty parties, someone to hang. Something to layer onto our analysis of red ink comes out of the Positive Psychology movement. Positive Psychology is the bit of psychology that looks at why things work out well, why some marriages last, why some people are resilient, it studies happiness. Rather than study divorces, depression, unhappiness, etc, it looks at the flip side of these phenomena. Appreciative Inquiry takes a similar tact. Rather than focus solely on red ink, it asks us to look for above-normal growth, where sales growth is the highest, the branch which is achieving considerably better results than the other branches. In tough times, I believe this becomes even more vital. So not only do you encourage people to be innovative but you task yourself to seek out the black, black ink, explore the reasons why the particular team or part of the organization are enjoying unusual growth, and reflect deeply on how to spread this to other parts of your firm.

These are unquestionably challenging times for virtually all firms I work with and teach. I believe that executives who follow a more emergent strategy approach, encourage frugal innovation from front-line troops and middle management, let a 1,000 flowers bloom, and then scale a chosen few based on hard data from pilots in the real world will have a greater chance to achieve meaningful growth in tough times.